Government agrees £3.5bn deal to fund new private rented sector homes using the Coalition’s Build to Rent initiative.
Could this be the start of the TESCOisation of the UK private residential rental market?
The UK government has long sought to institutionalise part of the UK private residential rented sector (PRS) to boost the supply of much needed housing and in the process stabilise house prices and rents.
The report released by Sir Adrian Montague in August 2012, ‘Review of the barriers to institutional investment in private rented homes’, highlighted institutional investment as the key to increasing the supply of new, high quality homes in the private rented sector and has played a pivotal role in stimulating the development of the scheme and a number of other initiatives.
To-date, most UK house rentals are supplied by small individual landlords, many with just one or two buy-to-lets, characterising the activity as a cottage industry. The move could mean a gradual shift to a German or US model where a larger proportion of rentals are supplied and managed by big corporations.
Traditionally, UK institutions have avoided the private rented sector as being “messy” and difficult to manage profitably, but with Government incentives such as these now on offer, the thinking is these companies may be tempted to give it a go.
The UK government has agreed the deal with a subsidiary of asset management firm Venn Partners (VP) that says it will provide £3.5 billion in funding for the construction of homes for the private rented sector (PRS).
Housing Minister Brandon Lewis signed the new agreement with PRS Operations Limited, a subsidiary of Venn Partners LLP to help unlock the £3.5 billion in funding to build new homes specifically for private rent across the country.
The government’s private rented sector housing guarantee scheme enables landlords of new rented homes to use a government guarantee to secure long-term financing. This investment will increase the supply of purpose built, professionally managed private rental homes giving tenants more choice of better quality homes.
Initially, up to £3.5 billion in government-backed loans will be made available to landlords looking to invest at least £10 million for new homes available for private rent – with the option to increase this to £6.5 billion in future.
Venn Partners has created PRS Operations Ltd, a new organisation that will secure institutional investment in building homes specifically for private rent. This new organisation will work to arrange up to £3.5 billion of funding – and then offer a series of smaller loans to eligible landlords looking to move into this expanding market.
Housing and Planning Minister Brandon Lewis, said:
“We’ve pulled out all the stops to get the country building since 2010, including by creating a bigger better private rented sector.
“Today’s deal with Venn Partners will secure a £3.5 billion investment in delivering homes specifically for private rent to ensure a range of developers across the industry get to expand into this growing market.
“This is an exciting and important move that will help strengthen the private rented sector so that it meets the needs of tenants well into the future. But this wouldn’t have been possible without the tough economic decisions we’ve had to make to restore confidence in our economy, and it’s this strong record that has unlocked this funding.”
Danny Alexander, Chief Secretary to the Treasury, said:
“Unlocking £3.5 billion of funding for the private rented sector will ensure that we continue to deliver the homes that people across the country need, as part of creating a stronger economy and fairer society. Housing starts are now at a 6 year high thanks to this government’s focus on building more homes.
“Investment in housing is essential for the future of an economy. That’s why for the first time in a generation, this government plans to directly commission homes, as well increasing investment in affordable housing to ensure the delivery of 275,000 affordable homes over the next 5 years. These guarantees will help to deliver more homes in communities across Britain.
Gary McKenzie-Smith, CEO and Managing Partner of Venn Partners, commented:
“We are delighted to have been appointed as the delivery partner for this important scheme. The mandate is underpinned by Venn’s presence and expertise in delivering term financing solutions and appropriate access points that allow a range of institutional investors to provide the much needed supply of credit into direct lending markets.
“We combine the real estate and credit underwriting expertise, capital markets track record and strength of investor relationships that is required to ensure the private rented sector housing guarantee scheme has a strong start and is a long-term success.”
Paul House, Head of Real Estate and Managing Partner of Venn Partners, added:
“Attracting significant institutional investment to the private rented sector, which is now England’s second largest housing tenure, is critical to underpin its further expansion, improve standards and tenant choice and help increase the supply of new, purpose built homes to help address the UK’s overall housing needs.”
Ian Fletcher, a director of the British Property Federation, has said:
“This is the culmination of a lot of hard work on the part of government and the PRS Taskforce to identify a suitable private sector partner.
“We are pleased to see that has paid off and that the sector can now more easily benefit from the guarantee scheme the government has introduced,” said Fletcher. “This is another important building block in the story of build-to-rent, and increasing housing supply through institutional investment in rented homes.”
— LandlordZONE (@LandlordZONE) December 16, 2014